Risk-based standards for private mortgage insurers could restrict lending

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Fannie Mae and Freddie Mac's federal regulator has proposed risk-based capital requirements for private mortgage insurers that homebuyers are required to use when making down payments of less than 20 percent on home purchases financed by mortgages guaranteed by Fannie and Freddie. The Federal Housing Finance Agency proposes conducting risk-based evaluations of each Fannie and Freddie-approved insurer's portfolio, to make sure each has enough capital to pay claims "under a scenario of significant market stress." The evaluations would apply "high-risk feature multipliers" for loans with debt-to-income ratios above 43 percent, and for mortgages that are not fully amortizing, lack full documentation, or involving purchases of homes not owner-occupied when the loan was originated. The risk-based evaluations, which could limit the number of mortgages that private companies are able to ensure, "are designed to reduce taxpayer risk by strengthening the role of private insurance in the...